May auto sales hit speed breaker, at 20-month low

Rise in fuel costs and increase in interest rate crimp domestic demand.

Domestic auto sales grew at its slowest pace in 20 months in May, industry data showed today, as buyers wary of rising lending rates and fuel prices shunned showrooms.

Sales rose 10.6 per cent in the past month to 1.37 million units from 1.23 million units a year earlier, according to data issued by the Society of Indian Automobile Manufacturers (SIAM). This is the lowest percentage gain since September 2009, when the rise was 9.6 per cent.

SIAM has decided to wait till next month to give a guidance for the whole year, though its president, Pawan Goenka, had earlier said the industry would grow at 14-16 per cent against 16-18 per cent predicted earlier.

“In retail sales, there are some bottlenecks like higher interest rates, non-availability of finance, rising fuel prices and higher prices of vehicles. The sentiment in the market is not ‘very positive’ and next month, we expect this to reflect in the sales numbers,” Sugato Sen, senior director at SIAM, told news agency PTI.

Car sales grew seven per cent in May, their slowest pace of growth in two years. Automakers in India sold 158,817 cars, compared with 148,425 units in the year-ago period.

India’s largest car maker, Maruti Suzuki, reported four per cent growth in domestic sales. But its bread-and-butter compact car segment, sensitive to fuel price and interest rate, reported a fall of three per cent.

Mayank Pareek, managing executive officer (marketing and sales), Maruti Suzuki India, said, “Surprisingly, enquiries showed growth of 23 per cent last month, but when it came to actually buying, the consumer decides to defer the purchase. We are, however, not moderating our production as of now.”

Though other car manufacturers like Hyundai, Volkswagen, Mahindra and Toyota recorded double-digit growth last month, it was largely on the back of a low base or an introduction of a new model. Tata Motors, India’s third-largest car maker, posted a nine per cent fall due to weak demand for its Indica and Indigo series.

Commercial vehicle sales grew 16 per cent to 56,314 units from 48,479 units a year earlier. This is better than the previous month when the segment posted eight per cent growth.

Analysts tracking the industry said with higher interest rates and the economy showing signs of a slowdown, commercial vehicle sales were expected come down in the coming months.

“One of the biggest worries is that the Reserve Bank of India has changed the specification of non-banking financial companies (NBFCs). Now, NBFCs cannot provide loans for purchasing non-transport vehicles, which are personal vehicles. They won’t get the refinance from banks. This will hurt the industry,” said Sen.

Motorcycle sales posted 14 per cent growth in May at 829,255 units, compared to 725,311 units in the year-ago period. With sales of more than 500,000 units, market leader Hero Honda posted growth of nearly 15 per cent. Bajaj Auto, India’s second-biggest bike manufacturer, sold 218,000 units, registering growth of nearly 14 per cent.